In 2023-24, the National Company Law Tribunal (NCLT) approved 269 resolution plans, a 42% rise from the previous year, according to Crisil Ratings. However, creditors recovered only 27% of admitted claims, down from 36%. Of the approved plans, 88% were backlog cases. Real estate and manufacturing sectors dominated, representing 65% of approvals. Despite appointing more NCLT members, the average resolution timeline increased to 850 days. The Insolvency and Bankruptcy Board of India (IBBI) is considering out-of-court mediation to speed up processes and improve recovery rates. Delays can significantly reduce asset value, underscoring the need for systemic efficiency improvements.
The National Company Law Tribunal (NCLT) has achieved a significant milestone in 2023-24, approving 269 resolution plans under India's insolvency law. This marks a 42% increase from the previous fiscal year, as indicated by a recent report from Crisil Ratings. However, while the rise in approval numbers is noteworthy, the complexities surrounding these resolutions pose challenges for stakeholders.
Of the 269 approved cases, a remarkable 88% stem from a backlog of previous years. This suggests that many companies had long been awaiting resolution, highlighting the difficulties faced by the NCLT in processing these cases. The increased interest from investors looking to acquire stressed assets is a key driver behind the surge in submissions, suggesting a growing confidence in turnaround potential.
Despite the rise in resolution plans, the financial recovery rate remains a concern. This fiscal year, creditors managed to recover only 27% of the admitted claims, a drop from 36% in the previous year. The real estate and manufacturing sectors play a significant role in these statistics, accounting for 65% of the plans approved. The real estate market, in particular, has seen a revival, driven by a steady demand for residential properties, while manufacturing resolutions have increasingly focused on small and mid-sized firms, as larger companies have largely resolved their issues.
One of the factors contributing to the higher number of resolutions is the appointment of additional NCLT members in late 2023. This move has helped streamline the process, but challenges remain. The average resolution timeline has stretched to 850 days, compared to 825 days in the last fiscal year. This inadequacy is compounded by delays in case admissions, ongoing cross litigations, objections raised by promoters, and postponed hearings. As of March 2024, the NCLT is handling around 4,400 ongoing cases, further hampering its ability to resolve new ones swiftly.
In response to these challenges, the Insolvency and Bankruptcy Board of India (IBBI) is exploring innovative solutions. Proposed measures include the introduction of a formal out-of-court mediation process to facilitate quicker settlements. This potential shift aims to foster dialogue between promoters and lenders, enhancing recovery rates while preserving the business value of distressed companies.
Crisil Ratings highlighted that unnecessary delays in the resolution process can lead to a significant decrease in asset value. A one-year delay may lead to a potential drop in recovery rates of 800 to 1,000 basis points, emphasising the urgent need for improved efficiency in handling insolvency cases.
Overall, while the record number of approved resolution plans reflects a positive trend in handling insolvency, the path ahead requires concerted efforts to address systemic challenges and increase recovery rates. Stakeholders must collaborate to find practical solutions that restore value and confidence in the insolvency process, ensuring that companies can return to health and contribute effectively to the economy.
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